UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.

LITIGATION RELEASE NO. 17788 / October 16, 2002

UNITED STATES v. G. MATTHIAS HEINZELMANN, III, Criminal Action No. 302-CR-178-R, United States District Court for the Northern District of Texas, Dallas Division.

SECURITIES AND EXCHANGE COMMISSION V. G. MATTHIAS HEINZELMANN, III, Civil Action No. 4:02-CV-0403-A, United States District Court for the Northern District of Texas, Fort Worth Division (filed April 25, 2002).

On October 3, 2002, Judge Jerry Buchmeyer, United States District Judge for the Northern District of Texas, sentenced G. Matthias Heinzelmann, III, the former executive vice president of Surety Bank of Fort Worth, Texas ("Surety Bank"), to a term of 36 months probation with six months of home confinement, in connection with an elaborate scheme through which Heinzelmann used bank customers' money to conceal bad loans and inflate bank revenues. In addition, the Court ordered Heinzelmann to pay a $10,000 fine.

Previously, Heinzelmann entered into a plea agreement with the United States Attorney for the Northern District of Texas, Dallas Division, pursuant to which he pleaded guilty to one count of conspiracy to make false entries in the books and records of a bank. By conducting the scheme, Heinzelmann also violated the federal securities laws. These violations are the subject of the Commission's pending civil action against Heinzelmann, filed in the Northern District of Texas, Ft. Worth Division, on April 25, 2002. In its action, the Commission is seeking a permanent injunction, an officer and director bar, and a civil money penalty.

According to the Commission's complaint, from 1996 through September 1999, Heinzelmann, while president and director of Surety Capital Corporation ("Surety Capital"), a Fort Worth based reporting company whose sole asset is Surety Bank, a wholly-owned subsidiary, engaged in an elaborate scheme to conceal loan losses incurred by Surety Bank. The scheme had a material impact on financial statements included in Surety Capital's Forms 10-K and 10-Q. Specifically, Surety Capital overstated its pre-tax income by 7% in 1996, and understated its pre-tax losses by 16% in 1997 and 97% in 1998. Further, Surety Capital failed to file its Form 10-Q for the period ending September 30, 1999. Because of the scheme, Surety Capital failed to make and keep books, records and accounts that, in reasonable detail, accurately and fairly reflected its transactions and dispositions of assets. Surety Capital also failed to maintain an adequate system of internal financial controls.

At the time the Commission filed its complaint against Heinzelmann, it simultaneously instituted settled administrative cease-and-desist proceedings against Surety Capital for violations of the reporting, internal controls, and books and records provisions of the Exchange Act.